Industry sentiment mixed on fuel blends

A Lawrence, Kan., fueling station pump offers gasoline that contains more than 10 percent ethanol.

WASHINGTON — The oil and gas industry's top trade groups doggedly insist that Congress must scrap a federal mandate that forces gasoline makers to blend in ethanol and other renewable fuels.

But not all oil companies are on board.

At least two major integrated oil companies — Royal Dutch Shell and BP — are pushing more modest changes to the 8-year-old renewable fuel standard, while others also have biofuels investments that would be undermined if the mandate were dismantled.

“Shell generally supports the RFS, but we do feel that it has to be revised,” John Reese, the company's downstream policy and advocacy manager, said during an event last week organized by The Hill newspaper.

As the world's largest distributor of biofuels, Shell recently partnered with Virent Inc., to produce advanced alternatives made with plant materials at a pilot facility in Houston.

“It's because of those interests we have a little bit of a different interest than some others in the oil industry,” Reese said.

BP, meanwhile, is half of Butamax Advanced Biofuels, a joint venture with DuPont that aims to convert corn, wheat and other biomass into an alcohol that has a higher energy density than conventional ethanol and can be blended into gasoline at refineries. Butamax's chief executive praised the renewable fuel standard in a June interview with Bloomberg.

BP says the fuel standard needs some revisions, but a spokesman said the company supports its goals and that BP hasn't been visibly part of the push to repeal it.

“There are challenges with the standard that must be addressed, and we continue to work with regulatory authorities to address these issues,” spokesman Matt Hartwig said.

The renewable fuel standard obligates refiners to add increasing amounts of ethanol and other alternatives into the nation's transportation fuel supply — up to 36 billion gallons in 2022.

But oil industry leaders say they are hitting a “blend wall” where they no longer can mix in enough ethanol to meet the renewable fuel mandate's volume targets without exceeding a 10 percent threshold acceptable for use in all cars and trucks.

And Exxon Mobil Corp.'s vice president of public and government affairs, Ken Cohen, wrote recently that the standard is “broken beyond repair.”

Despite the disagreements, Industry representatives say they're unified in their view that the renewable fuel standard is imperfect.

“While some members may have slightly differing views, there is unanimous recognition that the RFS is flawed,” said American Petroleum Institute spokesman Carlton Carroll.

In the short term, the industry is appealing to the Environmental Protection Agency to lower the total ethanol volume requirement to keep it below 10 percent of the fuel blend, and perhaps to waive other biofuel obligations altogether for a year.

The hardest-hit by the standard may be players called merchant refiners that sell petroleum products into the wholesale market without owning blending infrastructure and mixing in the biofuels themselves.

San Antonio-based Valero Energy Corp. is squeezed, for example, because while it is the nation's third-largest ethanol producer, the renewable fuel law blocks the company from holding on to the biofuel credits that are created with each gallon of the product.

Instead, those tradable biofuel credits travel with each gallon of ethanol to blenders.

Because Valero mostly isn't blending, it can't take advantage of the credits, even though the renewable fuel law requires refiners to secure the credits.

As a result, Valero is forced to buy the credits in a market where their prices have reached more than $1 per gallon, up from $0.05 a year ago.

But biofuel backers say that would undermine investments in nascent technology for producing a new generation of alternative fuels produced from nonedible plant materials, just as new factories are coming online.

Oil company investments are included in the mix.

A stable policy is essential, said John Kasbaum, senior vice president for Kior Fuels, a biofuel producer in a deal with Chevron Corp. “What's important is let's not change the rules in the middle of the game,” Kasbaum said.